US Core Inflation Jumps, Will It Spook The Market?

US Dollar Heads Higher after Encouraging Economic Data

The greenback rose on Tuesday against most other major currencies, in the wake of positive news on consumer price inflation in the US, coupled with optimistic new home sales statistics. The US dollar index, which measures the strength of the dollar against six other major currencies, climbed to 97.64, a rise of 0.42%. The euro followed the downward trend against the American currency, slipping to 1.0904, down from highs on the session of 1.1028.


US Consumer Prices Recover

Data out of the US showed that consumer prices were up 0.2% last month, broadly in line with analyst predictions. However, the market had been nervous, since consumer prices were down 0.7% in January. Core inflation, which discounts the impact of energy and food costs also rose 0.2%, a similar figure to what was seen in January. Year-over-year, core inflation came in at 1.7%, a strong performance and the biggest rise seen since last November. The strengthening of inflation data gave investors hope that the Fed had room to raise interest rates, even though inflation is running below their target.

Separate data also showed that new home sales in the US soared 7.8% in January, coming in at 539,000, according to the US Commerce Department. This was the strongest result since February 2008. Further encouragement came from the US manufacturing purchasing managers’ index, which was up slightly to 55.3% in March, compared to February’s result of 55.1. Again, this was a strong result compared to recent months – the strongest reading since October 2014.

Euro Gives Back Earlier Strength

Although the euro was down 0.37% against the dollar in late forex trading, it had strengthened earlier in the day after positive news from the Markit research group. It reported that the composite purchasing managers’ index was up to 54.1 in March, a rise of 0.8 from February.

The index, which tracks manufacturing and service sector activity, hit a 46-month high. News was also positive out of Germany, as data indicated that private sector expansion was the best in eight months. However, the news out of France was less positive, with private-sector growth falling off in March.

British Pound Down

Sterling fared less well than its other major currency counterparts on Tuesday, with GBP/USD declining by 0.63%. This came in the wake of news from the UK Office for National Statistics, which reported that the UK economy flirted with deflation in February, with price growth flat at 0.0% compared to predictions of a 0.1% rise. The result was worse than seen in January, which saw inflation come in at 0.3%. However, core CPI, which excludes volatile items including energy costs, still managed to rise 1.2% in February – although this again was less than the anticipated 1.3%.